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Published on December 1, 2007

The Bank of Thailand (BOT) said yesterday that it had not yet seen signs of "stagflation", as the economy continued to grow at a steady pace and there was no surge in inflation.

Well-known economist Virabongsa Ramangkura earlier warned that the country could enter stagflation, which is characterised by high inflation and unemployment and a slowing economy.

However, the economy continued to expand in October, pushed by a recovery in private consumption and investment along with higher-than-expected exports. Economic stability remained sound although inflation did rise moderately.

Amara Sriphayak, the central bank's senior director, said the economy continued to grow by about 4 per cent and was expected to expand further in the third quarter. He said inflation had not increased rapidly, as oil prices had not skyrocketed.

"There are signs of an economic slowdown, but inflation is not in double digits. I don't see any signs of stagflation, because economic conditions are different from those in the first oil shock," she said.

The United States experienced stagflation during the first oil shock. Inflation rose rapidly because of hikes not only in oil prices but also in commodities. Instead of raising key interest rates to chill inflation, the Federal Reserve cut rates, which fuelled a surge in prices.

In October this year, Thailand's domestic demand showed continued recovery while exports recorded impressive growth of 27.9 per cent. However, Amara said risk factors still remained, such as further oil-price hikes, political uncertainty, shaky business and consumer confidence and the sub-prime mortgage crisis in the US.

"The economy is performing in a satisfactory way, but we don't know what will happen in the future. For example, the December OPEC meeting might cause crude-oil prices to remain high," she said.

The BOT's Private Investment Index expanded for the first time in seven months in October, with a 2-per-cent hike. Real imports of capital goods grew 18.9 per cent on year, higher than 11.7 per cent in September. Commercial car sales saw a 16.4-per-cent hike, compared with 13.4 per cent in September.

"The index has grown without a dip since the second quarter but especially in September and October," she said.

Capacity utilisation confirmed the investment recovery with 77.6 per cent in October, higher than 76.3 per cent in the previous month.

The Business Sentiment Index (BSI) reflected improved investor confidence, recording 44.8 in October, compared with 44.5 in September, but the "expected BSI" declined slightly, from 51.4 to 50.5, due to concern about the spike in oil prices.

The Private Consumption Index has also been on an upward trend since the second quarter, with 1.8-per-cent growth in October, compared with a 0.7-per-cent contraction in the previous month. Imports of consumer goods accelerated by 28.3 per cent on year, higher than the 7.7 per cent in September.

The Monetary Policy Committee's meeting on Tuesday will revise economic assumptions and figures after crude-oil prices at the Dubai market in October and November exceeded the bank's worst-case scenario of US$80 a barrel.

According to the BOT, a 10-per-cent rise in oil prices dampened economic growth by 40 basis points but spurred headline inflation by 50 basis points.

Anoma Srisukkasem

 The Nation